Commercial Real Estate Spikes after Hurricane Katrina

Mortgage Banking, November 2005 | Go to article overview

Commercial Real Estate Spikes after Hurricane Katrina


THE DEMAND FOR COMMERCIAL REAL ESTATE space following Hurricane Katrina spiked in the regions surrounding the disaster zone, providing additional stimulus to major commercial market sectors that were already experiencing growth, according to an analysis by the National Association of Realtors (NAR), Chicago.

Key industries in the affected zone will need to rebuild or relocate in order to survive, said David Lereah, NAR's chief economist.

"We've been hearing about rapid absorption of commercial inventories in nearby areas that survived widespread hurricane damage. In addition, the need has extended geographically to other areas, with increased demand for space in adjacent states," said Lereah. "The greatest demand appears to be in the industrial, multifamily and office markets, but the long-term impact from Hurricane Katrina is uncertain as displaced tenants rethink their future."

With operations shifting away from New Orleans, at least for the short term, markets such as Houston and Dallas-Fort Worth, Texas; Atlanta; Tampa and Miami, Florida, could see vacancy rates for office and industrial space decline by two to three percentage points by the end of 2006. Rent growth will rise along with new demand, but it remains to be seen how much of the relocation will be permanent, according to NAR.

The NAR forecast of the four major commercial sectors-office, retail, industrial and multifamily-was based on an analysis of second-quarter data in 57 major metro areas.

In the office sector, vacancy rates were at the lowest level since 2001, resulting from a rise in space absorption and a decline in speculative building. Expect office vacancy rates to drop to 13 percent by the end of the year and to 11.3 percent by the fourth quarter of 2006, down from 15.4 percent in 2004. NAR forecasts office rents to grow 4.4 percent both this year and in 2006, after rising only 0.4 percent in 2004.

Areas with the lowest office vacancies include Ventura and Orange Counties, California; New York City; West Palm Beach, Florida; and Washington, D.C.-all with vacancy rates of 8.6 percent or less.

NAR projected net absorption of office space at 83.4 million square feet this year and 69.9 square feet million in 2006, compared with 77.7 million square feet absorbed last year and 20 million square feet absorbed in 2003.

The industrial sector also has seen gains as trade and shipping patterns continued to impact the market. …

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